Merck (NYSE:MRK), known as MSD outside the United States and Canada, today announced a global initiative to sharpen its commercial and research and development (R&D) focus. The multi-year initiative will enable Merck to better target its resources behind those opportunities that have the potential to deliver the greatest return on investment, including bolstering its pipeline and implementing a more agile operating model, with a significantly reduced, more flexible cost structure.
“These actions will make Merck a more competitive company, better positioned to drive innovation and to more effectively commercialize medicines and vaccines for the people who need them,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “Today’s announcement further underscores that we are committed to improving our performance in the short term while also investing for the long term to create value for patients, customers and shareholders.”
The company expects to realize approximately $2.5 billion in annual net cost savings by the end of 2015 and estimates that $1.0 billion, or 40 percent, of the savings will be realized by the end of 2014. The company anticipates that the substantial majority of savings will come from marketing and administrative expenses and R&D. These savings are off of the company’s full-year 2012 expense levels. By the end of 2015, the workforce reductions announced today, combined with pending, previously announced reductions of approximately 7,500, will result in a decrease of about 20 percent in Merck’s total global workforce of 81,000 employees. Total pre-tax costs for the new restructuring program are estimated to range between $2.5 billion and $3.0 billion. The company estimates that approximately two-thirds of these costs will result in cash outlays, primarily related to separation expense, and approximately one-third are non-cash, primarily related to accelerated depreciation of facilities to be closed or divested.
“While these actions are essential to ensure that Merck can continue to fulfill its mission into the future, they are nevertheless difficult decisions because they affect our dedicated and talented colleagues. We appreciate the contributions of all our employees, and we will support them during this time of transformation,” said Frazier.